SNR, Northstar Submit Amended AWS-Applications

SNR Wireless LicenseCo LLC and Northstar Wireless LLC today submitted to the FCC amended AWS-3 auction applications with amended agreements with Dish Network Corp. that they say cure their original AWS-3 applications and make them eligible for billions of dollars in bidding credits.

In January, the FCC’s Wireless Telecommunications Bureau released an order on remand providing SNR and Northstar the opportunity to cure their AWS-3 auction applications (TR Daily, Jan. 24).

The order in files nos. 0006670613 and 0006670667 was issued in response to a ruling last year by a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit. The court said that the FCC had not given adequate notice to SNR and Northstar that it would not give them an opportunity to cure their applications if their relationship with Dish disqualified them from receiving designated entity bidding credits intended for small businesses (TR Daily, Aug. 29, 2017).

Consequently, the court remanded the case to the FCC “to give petitioners an opportunity to seek to negotiate a cure for the de facto control the FCC found that DISH exercises over them.”

The court upheld as reasonable the FCC’s determination that Dish exercised de facto control over the two smaller companies and thus they were not eligible for about $3.3 billion in bidding credits. The companies had argued that their agreements with Dish were modeled on previous agreements approved by the Wireless Bureau.

SNR and Northstar Wireless have filed a joint application for review to the FCC of the Wireless Bureau order, arguing that it “outlines an unprecedented cure process that provides no assurance that iterative and responsive negotiations between the Applicants and the Federal Communications Commission (‘FCC’) will occur, contrary to both the mandate of the United States Court of Appeals for the District of Columbia Circuit (the ‘D.C. Circuit’ or ‘Court’) in SNR v. FCC and FCC precedent” (TR Daily, Feb. 26).

Since then, the companies have complained that FCC officials have refused to meet with them to provide guidance as they modified their agreements with Dish (TR Daily, May 7).

The companies also have asked the Supreme Court to review the D.C. Circuit’s decision.

In separate filings today, SNR and Northstar argued that the changes they have made to the agreements with Dish cure their AWS-3 applications and make them eligible for the bidding credits.

“Having been denied the opportunity to discuss specific concerns and changes with the Commission, Northstar and DISH entered into modifications to certain of their transaction agreements. Northstar and DISH made these changes based principally on the Commission’s analysis in the Northstar MO&O (as defined herein) and, for additional guidance, Northstar and DISH looked to the successful applications of two winning bidders in Auction 97 that were awarded bidding credits after the Commission released the Northstar MO&O,” Northstar said.

It called the modifications “comprehensive,” saying that, among other things, they have (1) “[t]erminated the Management Services Agreement;” (2) “[t]erminated the Trademark License Agreement;” (3) “[r]educed the amount of Northstar’s indebtedness to DISH by converting all but $500 million of indebtedness to DISH into non-voting, non-convertible, non-participating preferred equity, repayment of which is not required until there is a liquidation or deemed liquidation event;” (4) “[a]pplied to that preferred equity an 8 percent dividend rate going forward, which is lower than the prior interest rate on the debt;” (5) “[r]eplaced DISH’s investor protection rights with the six types of rights identified in Baker Creek as permissible;” (6) “[r]emoved restrictions on Northstar’s ability to acquire additional spectrum;” (7) “[e]liminated Northstar’s obligation to consult with DISH regarding budgets and business plans;” (8) “[r]emoved the requirement that Northstar’s systems be interoperable with those of DISH;” (9) “[l]owered the annual interest rate on the remaining DISH loan from 12 percent to 6 percent going forward;” (10) “[e]liminated DISH loan prepayment obligations and required interest payments, such that accrued interest is not payable until the loan maturity date, which has been extended from 7 years to 10 years;” (11) “[e]liminated the excess cash flow recapture provision;” (12) “[e]liminated the prohibition on Northstar owning real property;” (13) “[r]educed from 10 years to 5 years the period during which Northstar Manager may not sell its ownership interests in Northstar Spectrum without DISH’s consent;” (14) “[r]emoved DISH’s right-of-first-refusal on sales of Northstar Manager’s ownership interests in Northstar Spectrum and on license sales, and removed DISH’s tag-along rights on the sale of Northstar Manager’s ownership interests in Northstar Spectrum;” (15) “[e]liminated monetary limits on equipment financing and third-party unsecured debt;” (16) “[c]larified that the management fee is not a salary, or any type of cap on Northstar Manager’s ability to hire or engage additional resources, including personnel, for network construction and operations;” (17) “[i]ncreased from 30 days to 90 days the duration of the put window period after year five;” (18) “[a]dded a second put window after year six;” (19) “[a]dded a window after year seven for a fair market value appraisal;” and (20) “[e]xpanded Northstar’s right to initiate a public offering.”

Northstar added, “These comprehensive changes address the Commission’s stated concerns and warrant the grant of the bidding credits for which Northstar applied.” It added that the “demonstration is bolstered by a comparison of the revised agreements discussed here with the transaction terms of two Auction 97 designated entities — 2014 AWS Spectrum Bidco Corporation (‘Spectrum Bidco’) and Advantage Spectrum, LP (‘Advantage Spectrum’) — who were awarded licenses and bidding credits by the Wireless Telecommunications Bureau after the Northstar MO&O was released by the Commission. The revised Northstar and DISH agreements meet or exceed the standards established in the cases of these subsequently successful applications.”

In its filing, SNR generally touched on the same main points as Northstar.

SNR said it “believes it has cured the de facto control issues by: (1) terminating the Management Services Agreement (‘MSA’) between SNR and DISH; (2) terminating the Trademark License Agreement between SNR and DISH; (3) reducing the amount of SNR’s indebtedness to DISH by over 90% by converting all but $500 million of indebtedness to DISH into non-voting preferred equity, and not requiring payment of the full amount of the preferred equity interests until there is liquidation or deemed liquidation event, which SNR has the sole right to initiate; (4) applying to that preferred equity an 8 percent dividend rate, which is lower than the prior 12 percent debt interest rate; (5) eliminating all of the investor protection rights afforded to DISH in the LLC Agreement, and replacing them with the six types of rights specifically identified as permissible in Baker Creek and the 2015 Order; (6) eliminating the obligation of SNR to consult with DISH regarding budgets and business plans; (7) removing the requirement that SNR’s systems be interoperable with those of DISH; (8) lowering the annual interest rate on the unconverted portion of the DISH loan from 12 percent to 6 percent, and eliminating the higher interest rate for the loan that would apply in the case of default; (9) removing the obligations of SNR to prepay outstanding loan amounts and eliminating the requirement to make amortization payments and pay accrued interest prior to the maturity date; (10) eliminating the cash flow recapture provision in the Credit Agreement; (11) extending the loan maturity date from 7 to 10 years; (12) eliminating the prohibition on SNR owning real property; (13) reducing from 10 to 5 years the period during which SNR Management may not sell its ownership interests in SNR Holdco without DISH’s consent; (14) removing DISH’s right-of-first-refusal (‘ROFR’) on sales of SNR Management’s ownership interests in SNR Holdco and on license sales, and removing DISH’s tag-along rights on the sale of SNR Management’s ownership interests in SNR Holdco; (15) eliminating the monetary limits on (i) third-party unsecured financing and (ii) equipment financing; (16) clarifying that from the outset the management fee provided for in the Revised LLC Agreement was payable solely to SNR Management for managing assets and not as a salary, or any type of cap on SNR Management’s ability to hire or engage additional resources, including personnel, for network construction and operations; (17) increasing from 30 to 90 days the put window period after year five; (18) adding a second put window after year six; (19) adding a third window after year seven for a fair market value appraisal; (20) removing restrictions on SNR’s ability to acquire additional spectrum; (21) expanding SNR’s right to initiate a public offering; and (22) eliminating or revising other provisions of the LLC Agreement and Credit Agreement that the Commission identified in the 2015 Order as problematic.”

SNR added, “Taken as a whole, these amendments address all the concerns about the agreements expressed by the Commission in the 2015 Order, including that SNR has a ‘financial dependency’ on DISH, that DISH’s managerial responsibilities include ‘virtually all of the functions required of a wireless network licensee,’ that DISH has investor protections that are ‘well beyond those deemed necessary,’ and that the ‘economic realities’ are that DISH has the power to control the future operations of SNR. For these reasons, SNR submits that it has cured the de facto control issues identified by the Commission in the 2015 Order and SNR LicenseCo is eligible for very small business bidding credits in connection with the licenses it won in Auction 97.”- Paul Kirby, [email protected]

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